I believe it is perfectly proper for DCAA and DCMA to request written authorization from a contractor regarding a consultant handling government compliance issues such as incurred cost submissions and accounting system audits.

What I do not think is proper is suddenly demanding the authorization in hopes of getting around the consultant and thinking the client is more vulnerable and less likely to discuss compliance on their level (or above).

One recent example is an auditor demanding the contractor redo the Schedule I to make it easier to complete a cumulative cost schedule. She admitted to this in a telephone conversation and came to realize that this would require complete resubmissions to include new Schedule N for perfectly adequate and compliant submissions.

This same auditor today (different client), after numerous email correspondence and a telephone conversation that helped her locate the contract briefs in their proper places in the submissions, demanded the authorization after I asked her to expand on her statement “and negative responses were not provided for Sch M”.

The authorization issue does not come up often and usually DCAA is satisfied with a client email. I have a template I developed in conjunction with a client’s counsel I use for more formal occasions and this I send to DCMA as DCAA is their consultant.

DCAA’s job is to collect enough evidence to form an opinion on the adequacy of your accounting system or incurred costs. DCAA evaluates the evidence in relationship to statute, regulation, GAAP, reasonableness, or the contractor’s failure to provide credible evidence to allow for an evaluation.

The FAR mentions burden of proof in four areas: reprisals, statistical sampling, dairy products, and reasonableness. The first three are fairly esoteric while the fourth is not:

31.201-3 Determining reasonableness.

(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Reasonableness of specific costs must be examined with particular care in connection with firms or their separate divisions that may not be subject to effective competitive restraints. No presumption of reasonableness shall be attached to the incurrence of costs by a contractor. If an initial review of the facts results in a challenge of a specific cost by the contracting officer or the contracting officer’s representative, the burden of proof shall be upon the contractor to establish that such cost is reasonable.

(b) What is reasonable depends upon a variety of considerations and circumstances, including—

(1) Whether it is the type of cost generally recognized as ordinary and necessary for the conduct of the contractor’s business or the contract performance;

(2) Generally accepted sound business practices, arm’s length bargaining, and Federal and State laws and regulations;

(3) The contractor’s responsibilities to the Government, other customers, the owners of the business, employees, and the public at large; and

(4) Any significant deviations from the contractor’s established practice

(emphasis added)

Note, the contractor assumes the burden of proof only after the government (ACO or Auditor) challenge a specific cost.

The burden of proof rests with DCAA until they begin to believe something is unreasonable and then the burden of proof shifts to the contractor. Before this, DCAA can only reject a contractor position because it specifically defies statute, regulation, GAAP, is unreasonable, or the contractor fails to provide credible evidence.

I am not an attorney and I am sure a few DCAA auditors will take umbrage at this position. They are free to construct arguments that place the burden of proof on the contractor from conception. They should base these arguments on statute, regulation, Yellow Book, or GAAP. I look forward to the discussion.

An expanded discussion on this topic can be found in Surviving A DCAA Audit available on Amazon.

Hidden among all of our arguments concerning the Statute of Limitations is the stark fact that DCAA’s backlog makes this type of stupidity possible:

SPOKANE, Wash. –

The United States Attorney’s Office has filed a civil fraud complaint against a Spokane Valley defense contractor.

The 104 page complaint alleges that Monaco Enterprises Inc., a defense contractor selling fire and security systems to U.S. Military Bases around the world, has been submitting hundreds of false claims for inflated payment to the U.S. Air Force and U.S. Army since at least 2008.

The claim specifically names the company’s CEO Eugene Monaco and COO Roger P. Barno. Monaco and Barno allegedly engaged in fraudulent over-billing of U.S. Military Bases by routinely hiding costs, premiums, and undisclosed profit the government.

Because of these fraudulent practices, the U.S. Attorney’s Office says the Department of Defense was defrauded out of millions of dollars.

The United States alleges that during the time period of Monaco, as president, CEO, and majority shareholder of the company, reaped over $14 million dollars in shareholder dividends and corporate bonuses from the company in addition to his regular salary.